The Bank of England has kept Bank Rate at 3.75% at every meeting of 2026, the level it set on December 18, 2025, and the pound has been a quiet beneficiary: GBP/USD stood at about 1.354 on August 18, 2026, up from roughly 1.3215 in early December 2025 and 1.3453 at the start of January, according to DataPorium forex data [1][2]. The Monetary Policy Committee held in June by 7 votes to 2 and in July by 6 to 3, with the minority in both cases wanting a rise to 4.0% because of the energy shock [3][4]. This morning the Office for National Statistics reported that UK CPI inflation rose to 2.9% in July from 2.6% in June, driven by gas and electricity, while core inflation stayed at 2.6% [5]. As of August 19, 2026, the debate at the Bank of England is no longer about cuts; it is about whether a hike is needed.
Where the pound stands in August 2026
Sterling's 2026 range has been narrow by historical standards. Monthly bars from DataPorium show GBP/USD at about 1.345 in early January, 1.368 in early February, 1.331 in early April, 1.358 in early May and 1.327 in early July, before the August recovery to 1.35 and above [1]. Against the dollar the pound is up roughly 2.4% since early December 2025 and about 0.6% since the start of the year [1]. That may look unremarkable, but it came in a year when the euro and yen lost ground to the dollar, so sterling has outperformed its two largest neighbors.
The reason is straightforward. With Bank Rate at 3.75% and the Federal Reserve's target range at 3.50% to 3.75%, UK short term rates are on par with US rates for the first time in years, so the pound no longer carries a yield penalty against the dollar [2][6]. Both central banks are on hold, but the Bank of England's hold has come with a growing minority pushing for higher rates, which markets read as a floor under sterling [3][4].
Why the Bank of England held Bank Rate at 3.75%
Bank Rate reached 3.75% after a cutting cycle that took it from 5.00% in August 2024 through 4.75% in November 2024, 4.50% in February 2025, 4.25% in May 2025 and 4.00% in August 2025 [2]. The final cut on December 18, 2025 was the last move. In 2026 the Committee has judged that the energy shock from supply disruptions in the Middle East requires patience rather than further easing, and it has stopped short of reversing course.
The June and July decisions
At its June 17 meeting the Committee voted 7 to 2 to hold. The minutes recorded that twelve month CPI inflation had been 2.8% in May and was expected to reach a little under 3% in the third quarter and a little over 3.25% in the fourth, that UK GDP had grown 0.6% in the first quarter with underlying momentum closer to 0.2% a quarter, and that private sector regular pay growth had slowed to 2.9% in the three months to April, with 2026 pay settlements averaging 3.5% [3]. The Committee observed that, absent the energy shock, CPI inflation would have been at target in April [3]. Two members, Megan Greene and Huw Pill, voted to raise Bank Rate to 4%, citing the risk of stronger second round effects from energy prices [3].
On July 29 the vote moved to 6 to 3, with three members preferring 4.0% [4]. By then CPI inflation had fallen to 2.6%, the labour market was described as loose with vacancies below pre pandemic levels, and wage growth was approaching rates consistent with the target [4]. But the Committee judged that risks to the inflation outlook were tilted to the upside, noting that oil was at $84 a barrel and UK natural gas at 136 pence per therm on July 28, and its central scenario assumed only moderate second round effects [4].
UK inflation in July 2026: energy pushes CPI back toward 3%
The July inflation data released today confirm the Committee's concern. CPI rose 2.9% in the twelve months to July 2026, up from 2.6% in June, and 0.3% on the month [5]. CPIH, which includes owner occupiers' housing costs, rose to 3.1% from 2.8% [5]. The largest upward contribution came from housing and household services, where the annual rate jumped to 4.1% from 2.7% as gas prices recorded their largest monthly increase since October 2022 following the updated energy price cap; transport, mainly motor fuel, was the main offset [5]. Core CPI, excluding energy, food, alcohol and tobacco, was unchanged at 2.6% [5].
The split matters for the pound. Headline inflation at 2.9% is consistent with the Bank's June projection of a little under 3% in the third quarter, so it does not force a policy change [3][5]. Core inflation at 2.6% suggests that the energy shock has not yet spread widely into other prices. For the three members who wanted 4.0% in July, however, the acceleration in household energy bills is exactly the channel through which second round effects begin [4][5].
What the pound needs from here
Three conditions would keep sterling firm, and their opposites would weaken it:
- Rate parity with the United States. As long as Bank Rate at 3.75% matches or exceeds the Fed's range, the pound has no yield disadvantage [2][6].
- Contained core inflation. Core CPI steady at 2.6% lets the Bank hold rather than choose between a growth damaging hike and a credibility damaging cut [5].
- Fiscal discipline. A currency with a large current account deficit depends on foreign capital, which rewards restraint in public borrowing and penalizes surprises.
The market oriented case is that the Bank of England has done the right thing by refusing to cut into an energy shock, and that the growing minority for a hike has strengthened the pound more than an actual hike into 0.2% underlying growth would have. The counterpoint is that a loose labour market and slowing wage growth argue that the shock will fade on its own, and that holding at 3.75% for too long could weigh on an economy already growing slowly [3][4]. Investors may consider that the pound's 2026 stability rests on the Bank's credibility rather than on UK growth, and can follow GBP/USD alongside UK and US rate data on DataPorium's forex page [1].
The Bank of England held Bank Rate at 3.75% through August 2026 because energy pushed headline inflation to 2.9% while core stayed at 2.6%, and that patience, plus rate parity with the Fed, has kept the pound near 1.35 dollars.
Key takeaways
- Bank Rate has been 3.75% since December 18, 2025, and the MPC held it in June (7 to 2) and July (6 to 3), with the minority favoring 4.0% [2][3][4].
- UK CPI inflation rose to 2.9% in July 2026 from 2.6% in June, led by gas and electricity, while core CPI stayed at 2.6% [5].
- GBP/USD was about 1.354 on August 18, up roughly 2.4% since early December 2025 [1].
- With the Fed at 3.50% to 3.75%, UK and US short rates are at parity, removing the pound's yield disadvantage [6].
Frequently asked questions
What is the Bank of England interest rate in August 2026?
Bank Rate is 3.75%, the level set on December 18, 2025 and maintained at every 2026 meeting, including the July 29 decision that passed by 6 votes to 3 [2][4].
What is UK inflation in July 2026?
CPI inflation was 2.9% in the twelve months to July 2026, up from 2.6% in June, with core CPI unchanged at 2.6% and housing and household services up 4.1% because of higher gas and electricity prices [5].
Why has the pound risen against the dollar in 2026?
GBP/USD rose from about 1.3215 in early December 2025 to about 1.354 on August 18, 2026 because Bank Rate at 3.75% now matches the Fed's 3.50% to 3.75% range and several MPC members have voted for a hike, which supports sterling [1][2][4][6].
Will the Bank of England raise rates in 2026?
Three of nine MPC members voted for 4.0% in July 2026, and the Committee sees upside risks to inflation, but the majority judged that a loose labour market and slowing wages justify holding at 3.75% for now [4].
Sources & References
- [1] DataPorium Forex: USD/GBP daily and monthly exchange rates
- [2] Bank of England: Official Bank Rate history
- [3] Bank of England: Monetary Policy Summary and minutes, June 2026
- [4] Bank of England: Monetary Policy Summary and minutes, July 2026
- [5] ONS: Consumer price inflation, UK: July 2026 (released 19 August 2026)
- [6] Federal Reserve: FOMC statement, July 29, 2026
